My client has long term care ins and hired us as the company to help with her care. She wants to keep her private caregivers and pay them.

Ok...I think I have a better picture here and my suggestion is..
Walk away you do not need a client like this and getting caught up in insurance fraud

I think your partner is correct. WALK AWAY!

Bluntly, you can not by law pay people who are not your employees. If you do employ them, you must take SS and taxes out. Client is trying to get family paid and that is fraud. To go along with this could mean losing your business. I wouldn't even hire them. Doesn't sound like they are certified and then u have to vet them. Tell them sorry. The insurance company has stipulations and as a business you have to abide by them.
Payment for their caregivers would have to come out of clients pocket.

If she has a problem with that, she needs to talk to her insurance company but in the meantime, you don't think your agency is good fit.

Just a thought, maybe they have seen the Ads where "we will train a caregiver and pay them". If so, this is a government funded thing, I think, and you probably aren't involved in that.

Stay away.

Stupid woman! What the heck is the point of buying insurance and then huffily not using it because it won't cover the dodgy system you've set up with your buddies..? She might as well have saved herself the premiums.

I'm glad to see you're not going to touch this with a stick, and you are dead right.

Her private caregivers get paid under the table, they both are over 74 yo. I did ask if they wanted to join my company, but their thoughts were they could use my company to initiate the LTC insurance since they pay $242.00 a day and send in their hours on my invoice. I stated to them I would not include their hours on the invoice since they are NOT my employee's and the Client's daughter said "well how much money do you need"? I said that is ins fraud to go with the pretense they are working with my company and you're paying me my rate which is very affordable compared to franchise company's and the other 152 hours you are paying the private caregivers. She and the other caregiver said I was trying to blackmail them??
If other home care companies wanted to negotiate with them, they also would be on the losing end.

Reading this one way I get this, but I might be misinterpreting the question.
Are her private caregivers also your employees?
Most agencies have clauses that their employees can not work privately for a client.
If you have no such clause they can work for her but you should not have anything to do with it. You should not pay them for the extra hours. You should not be providing a 1099. She would be the one that would pay the taxes, SSI, and any other regulated withholding. She should also have insurance in case someone got hurt while working for her. And if one of your employees gets hurt working their "second job" who will replace them to fill their hours to your client?

Reading your question another way I get this.
If you are billing for 16 hours to (example) Senior Services that is providing the 16 hours that is the end of that billing.
If she needs more care she could still use your agency to get more hours and you can provide whatever employee(s) you have to fulfill the hours she will be paying for. You will be billing her not the (example above Senior Services) other agency.
You as an employer though must abide by rules as to the number of hours someone can work, the breaks.....

In either interpretation if she actually NEEDS more than 16 hours a week of care is this something you can discuss with the Social Worker or Case Manager and possibly her budget could be increased? If your caregivers (employees) can document significant declines since you have been providing caregivers it might help both of you out, you can bill more hours and she will not have to private pay for the extra care that she is qualified for.

I’m kind of confused. My mom had a company provide her weekend care, and then private caregivers through the week. She paid the company for their hours THEN paid the caregivers separately. Is your client wanting to fix it so the long term care insurance pays everyone’s salary? Do they fit your company standards & you could hire them as PALs? I ask, because one company was willing to do this to make it easier on us. Legally, you can’t refuse to allow her to have personal caregivers and if they’re NOT your employee’s, I don’t see how you can issue an invoice for their care OR 1099’s.

Your client has long term care insurance. The insurer will pay the approved care provider. You will be providing 16 hours of care per week, and your fee will be charged to the insurer. The other 152 hours are between your client and her insurer.

If the insurer will not pay for care provided by her current team because they are not approved suppliers, do not get involved in trying to finagle it.

And when you say she threatens to go without insurance... Do you mean she's expecting you to include these people on your company's policy for things like injury at work and professional indemnity? Forget it! Not A Chance.

Would there be any possibility of your company's recruiting these people formally? I can understand that if your client knows and likes and trusts them, it must be frustrating for her that her insurance won't simply cover their pay - a bit like being forced to take your car for repair to a main dealer instead of Fred down the road who understands its little quirks and won't insist you get the seatbelt repaired...

If you could be confident that other agencies will also have professional scruples and won't join in the monkey business with her, it would be easy. As it is, you've got a ticklish negotiation on your hands. Hope you can make it work. Are you in touch with the insurance provider yourself?

You have answered your own question, they are not your employees. She can pay her family herself, and issue them 1099's. I am not fully understanding this, she wants to defraud the insurance company and not pay her family out of pocket?